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Rate hike odds for March were at 34% before the CPI (they rose after), really not much of a change from the 30% before we heard from Yellen. I believe this is less due to what she said (she made it clear that they want to raise rates sooner rather than later) but more due to her reputation as the ultimate dove. The track record speaks for itself. Thus, with the market barely listening, if her intent is to tip us off to a March hike, she better get more pointed with her views. The belief in the boy who cried rate is still alive and well until proven otherwise.

After House member Devin Nunes yesterday on CNBC said that broad tax reform will likely not happen without including the border adjustment tax, today’s meeting of 8 retail CEO’s and President DJT takes on huge importance.

Mortgage applications slipped almost 4% w/o/w with purchases down by 4.5% to a 13 week low but remains up by 3% y/o/y. Is this 3 month low the result from what we saw in the Q1 Senior Loan Survey from the Fed last week where demand fell and credit standards were tightened for mortgage loans? Refi’s fell 2.9% w/o/w and have been cut in half y/o/y. The average 30 yr mortgage rate fell 3 bps for the week ended February 10th but that will change next week as the 10 yr yield is up by 7 bps since.

Off the highest level since 2005, II said Bulls fell .9 pts to 61.8 while Bears totaled 17.6, up 1.1 pts. The 44.2 pt spread comes off last week’s 46 pt differential which was the most since January 2014. We can add the CNN Fear & Greed index at 79, up 7 pts yesterday and vs 57 last week. This level is defined as ‘extreme greed’ and compares with a 21 print one year ago at the depths of the market lows and that was defined as ‘extreme fear.’ As seen though, the bulls can be right for a while and this in no way implies that we are ready for a sharp fall. Extreme bullishness instead more tempers further gains until the ebullience cools down.

The UK labor market continues to perform well. For the 3 months ended December, employment rose by 37k, 15k more than expected and the unemployment rate held at 4.8%, the lowest since 2005. Also reflecting strength, January jobless claims fell by 42.4k, well more than the forecast of up .5k and December was revised down by 10k. Wow, were the estimates way off but the statistics office said there was some changes to benefits that distorted the seasonal adjustments. A statistician at the office that produces the jobs data said “Continued moderate growth in employment has led to a new high in the total employment rate…Overall, the labour market appears to be edging towards full capacity.” That said, wage growth was a bit below expectations as they rose 2.6% y/o/y ex bonus’ for the 3 months ended December, down from 2.7% in the month prior and vs the estimate of 2.7%. This is still around 8 yr highs and that’s a good thing considering the inflation heading their way. Just because the huge increase in input prices hasn’t yet filtered into consumer prices doesn’t mean it won’t. Someone has to eat the higher costs driven by the weak pound.

The pound is lower on the slight miss in wages while inflation breakevens are little changed but Mark Carney and the BoE have put themselves in a really tough spot panicking as they did after Brexit with another rate cut and more QE. Emergency monetary policy is what they are running and I expect that to begin to reverse this year. I like the pound.

Likely a key reason why the euro still won’t break below $1.00, the December Eurozone trade surplus rose 2.3b euros m/o/m to just shy of a record high in any one month. For the full year, the trade surplus rose to 274b euros, up 15% from 2015. That is the most since the euro was created in 1999. Peter Navarro is not happy with that.

Following the off the charts loan growth in January seen yesterday (addictions are hard to break), it fueled an almost 2% rally in the China H share index to the best level since October 2015 but the Shanghai comp was unchanged. The H share market is cheap as can be at 8.5x earnings but a lot of that is the low P/E multiples on the banks which are potentially toxic with all the debt that is accumulating. The Hang Seng was up by 1.2% but they have issues too with a huge property bubble and the Fed raising interest rates that they import due to the peg.